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Public sector pay deals may bind private sector says European Court

22 February 2013 #Employment

Question: Would public sector employees who are subject to industry or sector wide negotiated terms continue to be entitled to benefit from increases in pay which are negotiated under those terms after they have transferred to the private sector?

Background of the case:

The Claimants were originally employed by London Borough of Lewisham. These Claimants had a contractual entitlement to pay increases which were in accordance with collective agreements, which were negotiated by the National Joint Council for Local Government Services.

These Claimants employment transferred in 2002 to a private sector company which was acquired by Parkwood Leisure Ltd (Parkwood).  The TUPE regs applied.

London Borough of Lewisham negotiated a pay increase with the trade unions; the transferred employees also claimed their entitlement to the pay rise. Parkwood, their current employers, refused on the basis that they were not involved in the pay negotiations and also that they did not recognise any of the relevant unions.

Legal action taken:

  •  Claims submitted to the Employment Tribunal (ET) – claims were dismissed, the Tribunal’s decision was that the Respondents were not obliged to make payments after a certain period following the inheritance of contracts of employment on the transfer of an undertaking. - Decision appealed - this was favourable to private sector companies.
  • Employment Appeal Tribunal (EAT) – decision was that where a collective agreement provides for terms such as pay which were negotiated with trade unions, if the agreement is incorporated into individual employment contracts (as it was in this case) employees are entitled to the benefit of any post-TUPE transfer improvement in terms that are negotiated in accordance with that agreement.  This became known as “the dynamic approach”– Decision appealed – this was unfavourable to private sector companies.
  • Court of Appeal (CA) - disagreed with the EAT- they concluded that the TUPE Directive never intended a transferee employer to be bound by any collective agreement other than one in force at the time of the transfer. It accordingly favoured a “static approach” to this question - this was favourable to private sector companies.
  • Supreme Court - stated that if the TUPE regs were read in isolation then these clearly point to the “dynamic approach” This would be unfavourable to private sector companies.

In the Supreme Court’s view, where a contractual term allows an employer to delegate negotiation of a salary to a third party, there was no reason why this should be affected by a transfer. The Supreme Court was unable to resolve this issue.

The Supreme Court asked the Court of Justice of the European Union (CJEU) whether dynamic clauses could in principle transfer under the Acquired Rights Directive.

Opinion of the Advocate-General

The Advocate-General has stated that responsibility for allowing “dynamic clauses” to transfer would be down to individual Member States.

The Directive does not interfere with the right of the UK to allow the use of “dynamic clauses” referring to future collective agreements and to protect such agreement indefinitely on transfer. However as issues of contract, dynamic clauses can be renegotiated or amended by the parties at any time during the life of the contract.

If the CJEU were to follow suit, the Supreme Court would decide in favour of the employees, preserving their right to collectively agreed pay rises.

No final decision yet but given that the Advocate-General’s opinion, though not binding, is usually followed, it seems likely that the CJEU`s judgment will permit UK courts to apply a more generous approach - the “dynamic” interpretation.

The current status will possibly be viewed as bad news by private and third sector providers of services in those sectors where sector or industry-wide bargaining is in place.

The importance of checking the specific terms of contract cannot be stressed enough.

A final decision is yet to be made…

Clarkslegal, specialist Employment lawyers in London, Reading and throughout the Thames Valley.
For further information about this or any other Employment matter please contact Clarkslegal's employment team by email at by telephone 020 7539 8000 (London office), 0118 958 5321 (Reading office) or by completing the form on this page.
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